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As China’s One Belt One Road initiative moves from the planning to the implementation stage, it will face some serious risks including building collaborative links with partner countries and mitigating excessive investments. As global ITS companies and industry players in the OBOR initiative, there will no doubt be a wide range of factors to consider in the overall risk analysis for mid and long term ITS projects along the OBOR routes, as well as other economic development and provincial reformation projects.

Infrastructure risk

Most importantly for the ITS industry, there is an infrastructure risk with ITS projects in various countries along these routes. The access to port facilities, as well as air transport facilities may prove a problem with the wide variety of countries and cities that will be serviced by the One Belt One Road program. A distribution network along the routes needs to be in place. If not already in place, One Belt One Road will build these networks.

Additionally, in some countries a viable communication network may not yet have been established. This is yet another opportunity for China and OBOR partner countries to build local infrastructure. Road networks, power networks, rail networks and IT infrastructure is lacking, which could hinder the project. However, this will also provide a tremendous opportunity for One Belt One Road partner companies to build these systems and set them in place in partner countries as the initiative gains momentum.

Legal and Regulatory Environment

When looking at potential cooperations, analysts for the One Belt One Road initiative must also look at the enforceability of contracts, intellectual property rights, private property rights, and the overall speediness of the judicial process in a foreign country. Furthermore, does this partner country have a history of discrimination towards foreign entities? Has the country confiscated property from foreign businesses? Are the competitive practices fair? Will private property be protected? All of these questions will be posed when looking at new development projects with new countries, as many of these countries do not currently have a solid relationship with foreign countries, specifically China.

Government Effectiveness

Bureaucracy is something that cannot be overlooked when planning partnerships with China and local partners along the routes. Red tape and excessive amounts of bureaucracy can push project deadlines far into the future and run up completion dates for construction projects. Corruption, as well as the accountability of public officials must also be considered for the OBOR initiative.

Political Stability

Political stability is another risk factor that must be considered. Social unrest in certain countries may pose a risk for more long term projects. Excessive executive authority and international tensions must also be taken into account.

Security

Security risks must be evaluated with the wide range of countries collaborating with China in OBOR. Armed conflict, terrorism and crime are factors that must be considered when evaluating projects with new global partners. Additionally, terrorism may pose a threat in certain regions in addition to hostility towards foreigners, or kidnapping and extortion threats.

Political Stability

Political stability is a risk factor that Chinese analysts must consider for OBOR. Social unrest in certain countries may pose a risk for more long term projects. Excessive executive authority and international tensions could also delay projects.

Government Effectiveness

Bureaucracy is something that cannot be overlooked when planning partnerships with international partners. Red tape and excessive amounts of bureaucracy can push project deadlines far into the future and run up completion dates for construction projects. Corruption, as well as the accountability of public officials could also play a large role in the effectiveness of OBOR projects abroad.

Macroeconomic Risks

Macroeconomic risks must also be thoroughly thought-through. Is there a risk of recession in this country? Is the exchange rate volatile? Is there price instability? Are interest rates stable? Macroeconomic risks could turn an otherwise profitable cooperation into a loss for China if the economic situation in a country changes in the next decade or two.

Foreign Trade and Payment Issues

When investing with foreign partners, trade embargo risks are definitely part of the risk analysis process. For China’s One Belt One Road initiative, analysts will most definitely consider the risk of financial crisis, discriminatory tariffs, current-account convertibility and capital controls risk.

Financial Risks

There is always a devaluation and depth of financing risk when working with foreign partners. Access to local markets can be a difficult and lengthy process.

Tax Policies

Corporate taxation and taxes aimed at foreign businesses will also affect the viability of international collaboration. Retroactive taxation and corporation taxation will also play a role in selecting partner opportunities for OBOR.

Competition

The One Belt One Road initiative will seek to not only expand China’s global influence, but also to increase the economy at home. Every Chinese province will have a stake in this push for domestic industry. Many provinces are already planning expos as they anticipate the trade between One Belt One Road partner countries. The One Belt One Road initiative will also seek to eliminate much of China’s domestic overcapacity.

China quickly rose over the past few decades from a small global player to a manufacturing powerhouse. Now that the Chinese economy is slowing, leaders hope that One Belt One Road will help to spur demand.

Many industries, such as the Chinese steel industry, have seen record lows in the past years. The sales rate for steel hit its lowest ever in March 2015. Rather than rolling out huge domestic building projects, China aims instead to increase exports of the China made goods to reduce pressure of the overcapacity, as the leaders prefer not to overheat the real estate market and move towards more stable economic growth. It seems that China is already evaluating overall risk and seeking to avoid the pitfalls of the U.S. economic collapse.

Source:Risks and Challenges for Global ITS Products Companies For China’s One Belt One Road

Author : Ray Lam President at Esme One Asia Ltd.